The coalition government must lay out a clear strategy for economic growth if the private sector is to have enough confidence to create the positions required to absorb public sector job cuts, business leaders have warned.
In the wake of the Comprehensive Spending Review announcement yesterday, Lord Alan Sugar, entrepreneur and star of the BBC's Apprentice series, led the call in stressing that the public sector deficit could not realistically be cut without economic growth.
He wrote on Twitter: "How is [the] private sector expected to deal with increased unemployment of 490k? [Chancellor George] Osborne fails to realise [the] deficit can't be cut without growth."
His sentiment was echoed by the British Chambers of Commerce. While David Frost, its director general, acknowledged that the deficit had to be tackled, he warned that the government now had to put forward a "clear strategy for growth".
Such a strategy was vital to "give companies, and especially small and medium-sized enterprises, the confidence to invest. Perceptions matter. Businesses and government must work together to deliver a real year for growth in 2011. This is the only way that the private sector will be able to take up the slack", he said.
The key issue was to enable the private sector to create enough jobs to help the millions of unemployed and inactive people get back into work. "We must answer the question of where the jobs will come from, especially with over a million people already working part-time who want to go full-time. To create new employment, we need to cut red tape and give businesses the confidence to hire," Frost added.
Although government subsidies for in-work training would be cut back and the Train to Gain scheme would be axed, Frost warned that remaining funding "must be focused on providing people with the skills needed to get into work".
"Too many businesses tell me that job candidates lack the basic skills needed to make them employable. Until we sort this out, Britain's companies will continue to highlight skills shortages as a barrier to growth," he said.
Further clarity required
There were also still a number of "unanswered questions" about the business budget, notably around support for exporters and schemes that would help both new and existing businesses to grow. "Further clarity is still required," Frost said.
He likewise found it disappointing that the budget for export promotion had been cut by 25%, particularly when politicians claimed that they wanted to see a rebalanced UK economy as a key engine for growth.
The Federation of Small Businesses (FSB) agreed. John Walker, its national chairman, urged the government to put in place the missing link in its deficit reduction programme – a Small Business Programme to promote economic growth in order to increase the tax base, create more businesses and give small firms the incentives to grow.
Such a programme was crucial given the latest FSB research indicated that 10.4% of companies expected to cut employment over the next three months after business confidence in future prospects and revenue growth weakened over the July to September quarter.
Walker said: "The small business community continues to have a vital part to play in driving credible recovery and taking on new members of staff to help tackle unemployment so it is now vital the government puts a Small Business Programme into action immediately."
Small firms were at a "tipping point" and lacked the confidence to take on the 500,000 public sector workers facing redundancy as a result of budget cuts. "So it is up to the government to incentivise the small business community – through extending the National Insurance Contribution holiday to existing firms and cutting VAT to 5% in the construction sector – to promote growth and help small firms take on new staff," Walker said.
The National Insurance Contributions holiday should be extended to existing firms with up to four staff members and provide incentives when they took on three new employees. Such incentives could be funded by scrapping the £1bn Regional Growth Fund.
But the business support budget should also be cut to £500m and focus expenditure on providing genuine support for micro-businesses as well as a fully operational web portal.
Finally, a business-led Mentoring Service should be created via the Institute of Enterprise and Entrepreneurs to match mentors with businesses, with backing from the banking industry.